What Is a Thrift Savings Plan, and How Does It Work?

This article was originally published here

A Thrift Savings Plan (TSP) is the equivalent of a 401(k) for government employees. In other words, it’s a government employee’s tax-advantaged retirement plan.

Participants in a TSP must be from one of the following groups:

  • The Federal Employees Retirement System (FERS), a retirement system for federal employees (FERS)
  • Retirement System for Civil Servants (CSRS)
  • Members of the armed forces (active duty or Ready Reserve)
  • Civilians in other kinds of service

What Is a TSP?

If you qualify for a Thrift Savings Plan, your employer will usually inform you at your job orientation.

Do you intend to donate to a TSP at work? There are a few options available to you:

• Will you donate a certain proportion of your salary?

• Will you donate to a standard TSP or a Roth TSP? (The distinctions between IRAs and 401(k) plans are the same.)

• What are your plans for investing your money in your TSP?

What Is a Thrift Savings Plan? Additional Considerations

Civil servants can only contribute to their TSP from their regular income (as opposed to bonus or overtime pay). Members of the armed forces can contribute from their normal pay, bonuses, or overtime pay.

If you work for FERS, 1% of your salary is automatically deposited into a TSP, whether you contribute or not. You lose your free retirement savings if you don’t stay on the job for three years. As a result, it is a retention strategy.

TSP contributions are automatically registered for some employees. The money is usually put into a lifecycle fund. Some people are surprised by this, as they are unaware that a portion of their salary is redirected to a retirement account. If you work in the government, this is something to consider.

If you switch from the private to the public sector, you can roll your 401(k) or IRA into a TSP. If you switch from government employment to a private company, you can do the same thing in reverse.

Normally, you won’t be able to contribute to a 401(k) and a TSP simultaneously. You can, however, contribute to both a TSP and an IRA at the same time.

What Are the 2022 TSP Contribution Limits?

Contribution Limits for the Thrift Savings Plan in 2022:

Employee contributions (under 50 years old) are capped at $20,500.

Employee catch-up contributions (for those aged 50 and up) are $6,500

All sources have a contribution limit (under age 50) of $61,000; $67,500 contribution limit, all sources (age 50+)

Thrift Savings Plan contribution limitations for 2022 are nearly identical to the 401(k) contribution limits.

You can contribute up to $20,500 to your TSP plan this year if you are under 50 years old on December 31, 2022. This holds even if you split your contributions across regular and Roth TSP plans.

Those aged 50 and up are eligible for an extra $6,500 in “catch-up” payments. You can also make after-tax contributions that exceed the base contribution limitations if your employer allows it.

The IRS enables you to put up to $61,000 in additional money into your TSP in 2022, including your contributions and any money your workplace provides. (For people aged 50 and up, the figure climbs to $67,500.)

Investment Options in the Thrift Savings Plan

Within your TSP, you have only six investing possibilities. Counting the ten separate “lifecycle” funds, which are the target date fund equivalent, brings the total to 15.

Here are the options:

  1. Government Securities Investment (G) Fund: This fund invests in US Treasury securities.
  2. Fixed-Income Investment (F) Fund: Follows a specific index fund that invests in government bonds in the United States.
  3. Common-Stock Index Investment (C) Fund: This fund mimics the S&P 500 index.
  4. Small-Cap Stock Index Investment (S) Fund: Follows a Dow Jones index of small- and mid-cap companies.
  5. International Stock Investment (I) Fund: Stock in non-US corporations is held in this fund.
  6. Lifecycle funds: These funds comprise a mix of each of the five other funds, balanced to a suitable level of risk depending on how near you are to retirement. They are available in five-year increments that indicate your estimated retirement date.

The government creates retirement programs with your best interests in mind, so you can hopefully support yourself in retirement. However, the IRS will eventually want a portion of your earnings, so you need to take a required minimum distribution.

Contact Information:
Email: [email protected]
Phone: 2129517376

M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementiong a sound plan for your retirement. We are commited to helping you achieve your goals. Visit us at M. Dutton and Assoiciates.COM. Tel. 212-951-7376: email: [email protected]


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